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Gain on small business stock excludible from income for tax purposes

posted April 21, 2016

About the PATH Act: gain on qualified small business stock excludible from income for federal tax purposes.

In the US, small businesses make up more than 99.7 % of all employers and provide jobs for about half of the nation’s private workforce (source: SBA). To recognize the value of investment in small business, the Protecting Americans from Tax Hikes (PATH) Act: gain on qualified small business stock purchased any time after Sept. 27, 2010, is 100 percent excludible from income for federal tax purposes. 

This exclusion is now permanent – or at least until Congress gets serious about taking up fundamental tax reform.

For a small business stock to qualify under Section 1202 – and hence take advantage of this exclusion:
• The business must be a United States C corporation with $50 million or less in capital.
• The stock must have been directly acquired as an original issuance from the C corporation (or via gift or inheritance from the original acquirer).
• The stock must be held for more than five years from the date of acquisition.
• Eighty percent of the value of the corporate assets must be used in the active conduct of business.
• The company must provide services in an eligible sector—those in personal services, law, banking, finance, leasing, hospitality, health, farming or mining are not eligible for this exclusion.
For more information refer to the PATH Act. http://docs.house.gov/billsthis…/20151214/121515.250_xml.pdf

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